GM will take a 7 percent Peugeot stake as part of a share issue by the French automaker, and the two companies will pool research and development, vehicle platforms and technologies. The agreement was announced after European markets closed.

In the statement, GM said the alliance is structured around two pillars:

• The sharing of vehicle platforms, components and modules.

• The creation of a global purchasing joint venture for the sourcing of commodities, components and other goods and services from suppliers with combined annual purchasing volumes of approximately $125 billion.

"Each company will continue to market and sell its vehicles independently and on a competitive basis," the statement said.

The deal, which comes as both Peugeot and GM's Opel unit grapple with slow sales and overcapacity in Europe, has met with widespread skepticism among analysts and investors.

"This is not the type of solution we need to see in the European mass market, where capacity has to leave," Credit Suisse analyst Erich Hauser told investors in a note.

European struggles

Like Peugeot, Opel is struggling to reverse mounting European losses compounded by the region's auto sales slump and cut-throat price competition. GM's European operations lost $747 million last year, while Peugeot's core auto division was 497 million euros in the red in the second half.

French markets regulator AMF yesterday called on Peugeot to issue a statement quickly to confirm or deny reports about the GM tie-up and capital hike but the automaker has yet to do so.

Peugeot last week confirmed that alliance talks were underway, without identifying the potential partner.

The Peugeot family, which owns just over 30 percent of the car maker, has signaled that it would not be opposed to some dilution providing it remained the principal shareholder.